October 18, 1999
NEW YORK – The Foreign Exchange Committee, joined by a number of international financial industry associations and committees in Australia, Canada, England, Japan, Singapore and the United States, today issued guidelines designed to minimize confusion associated with any foreign exchange contracts (including options and swaps) that fail to settle as a result of Y2K-related events that affect clearing banks or central banks.
The recommended guidelines, known as "Y2K: Best Practice in the Foreign Exchange Market," include background information, the terms of the Best Practice, general notes and a statement as to how the Best Practice is to be used.
In general, the Best Practice recommends a short waiting period after a Y2K event occurs that affects a clearing bank or a central bank.
If the Y2K event is not remedied within the specified waiting period, the Best Practice states that some or all affected transactions may be liquidated at then current market prices.
Parties are, of course, free to mutually agree to take actions other than as specified in the Best Practice.
The guidelines do not apply to a failure to settle as a result of a Y2K problem within the systems of a party to a contract, which would be covered by the non-payment provision of the applicable contract.
Parties to transactions will retain the rights and remedies provided in their contractual arrangements.
In particular, the Best Practice would not change credit provisions and defaults unrelated to Y2K events.
The guidelines reflect commercially reasonable standards for market participants and provide guidance to regulators and tribunals who may be asked to consider the actions of participants in the foreign exchange market in the event of problems resulting from the millennium date change.
It is anticipated that foreign exchange market participants both inside and outside of the U.S. will use the guidelines.
The guidelines were prepared by a joint Working Group of the Financial Markets Lawyers Group and the Foreign Exchange Committee's Operations Managers Working Group.
The Foreign Exchange Committee is sponsored by, but independent of, the Federal Reserve Bank of New York.
A copy of the Best Practice is available at the Foreign Exchange Committee's website at http://www.newyorkfed.org/fxc.
The Australian Financial Markets Association, The British Bankers' Association, the Canadian Foreign Exchange Committee, the Emerging Markets Traders Association, the International Swaps and Derivatives Association, Inc., and the Singapore Foreign Exchange Market Committee have joined in the issuance of this Best Practice. The Tokyo Foreign Exchange Market Committee has endorsed this Best Practice, which is currently being considered by trade associations in other countries.